Pirated Economy

Submitted by: Eric White

A small article in the back of the Wall Street Journal, Sites Battle for Chinese Web Users (found in section B4 of the Marketplace section October 9, 2008) tells of the competition between two Chinese on-line auction sites. At first I thought that the growth of on-line shopping, specifically auction sites, would be a great thing for the Chinese as this would provide access to a wide variety of products just as eBay has done for the US. Never mind the deficiencies and lack of reliability of mail in China, due in large part to the unsystematic street addresses, how will these sites govern the issue of counterfeit products?

Since counterfeiting is so prolific in China and regulations are weak at best, who will take responsibility in ensuring on-line buyers at auction sites that the products they are buying are really authentic? I am sure there is some protocol to which the on-line site has come up with in dealing with this issue, but I am very curious as to what it is. If auction sites are unable to ensure authenticity of products sold and lack the legal ability to prosecute would be counterfeit item sellers then the outlook for these new auction sites are bleak.

Thoughts? Comments on how these sites could effectively regulate counterfeit products?

This entry was posted in Blogroll , Uncategorized . Bookmark the permalink.

6 Responses to Pirated Economy

  1. Great points you bring up Eric. I would assume that these sites will be regulated in a ‘democratic’ manner. Reliable sellers will get high votes, scam artists will be revealed – though I’m sure there will be slip ups along the way.

    I think Chinese people are well aware of the excess of counterfeit goods. This just me guessing, but I would think products sold on these sites will be judged on their functionality, not whether they are Made in Italy. I doubt many people are expecting to get authentic Prada bags on Taobao, but I could be wrong.

    As for the unsystematic street addresses, big city real estate developers are busy razing old, traditional neighborhoods in order to construct all these new high rise communities. You have to believe some serious progress is being made in modernizing their post system – though many would argue that the progress comes with unacceptable costs.

  2. Chris Carr says:

    This is a complicated issue.

    One reason this is less of an issue in the US an with our online auction sites is because, among other things, of a number of things we take for granted.

    For example, we use credit cards and generally trust in them and their use (even over the Internet), we have UPS and Fed-X to ship and they are reliable carriers, if things blow apart we have an established rule of law, courts, good judges, sheriffs that will take a court order and seize the bad guy’s assets to fall back on, etc.

    China is still developing these tools and items. For example, cash remains king in China in paying for things, not PayPal or credit cards. This will change and they will get there, but it will take time (but holy smoly are they moving fast). China remains a developing country/(huge) emerging market, the size of its population and economy notwithstanding.

    So, comparison between examples and markets (US and China or India) can be a good thing. Just keep in mind you are often comparing apples to oranges.

    Final point:

    Victory in business in China and elsewhere, more and more in the future, will go to those firms (including on-line auction firms in China) and people (such as yourselves with MBAs) who rely less on the traditional tools and weapons of IP registration, monitoring, go to the cops, enforcement, courts, lobbying, etc., and rely more on developing business models that are more attractive to various stakeholders than cheating.

    See, e.g., China hand David Wolf of the Silicon Hutong blog recent post, IPR Protection: Beyond Law and Enforcement.

    This is the world you are entering into upon the completion of your degree. Exciting personal and business opportunities will abound as never before, but it won’t be easy. You will have your work cut out for you.

  3. Oscar Merlin says:

    I think that the government has to take responsibility on this issue, Eric. I think that they have the power necessary to stop the movement of counterfeit products through their country, but it will have to take on some major reforms. I think that the government needs to implement something like a “seller be ware” type of deal.
    I am ignorant on their current laws on this issue. But, if I were given the chance to pass legislation in China, I would pass a bill that said that if you bought a counterfeit product from any seller, that you had the opportunity to demand 2 times the money that you paid for the product (no strings attached to you). So this law, in a sense, would target seller’s and would reward buyers (even though buyers are as much in fault as sellers).
    I think that after this law came into effect that every vendor would decrease the amount of fake products it sells, just because of the fear of being demanded back twice of what someone just paid for something, decreasing demand for those products nation wide. But then again, I am sure more than one Chinese law maker has thought of this, the only thing that I wonder is why it hasn’t been implemented.

  4. Chris Carr says:

    Don’t too quickly assume the central government in Beijing can/has the power (or resources) to control the counterfeiting beast in China. The provinces pretty much do what they want on this issue (and others), turn the other cheek, etc. They do so because it generates revenue for them. Beijing has its hands full on this issue.

    One other point of note:

    I will take you to Silk Alley in Beijing (see this short Wall Street Journal video on the place). The place is full of, you guessed it …. westerners …. happily buying their cheap knock offs and counterfeit products to take back home, then upon returning home they express dismay and shock to their fellow citizens about how bad the counterfeiting problem is in China. I.e., we are sometimes our own worst enemy and are as much a part of the problem as the Chinese counterfeiters are.

  5. Eric White says:

    Because of all the negative talk in the US (really the only source of news to me) of counterfeit products in China, I always assumed that everyone thought counterfeit products were undesireable whether here in the US or in China.

    I know from reading different articles about intellectual property rights that China already has in place most of the laws necessary to stop IPR violations and counterfeit products, but they just lack the resources to do so. Even though these laws are in place, does China’s central government really want to enforce them? As Dr. Carr brought up, the huge flow of counterfeit products brings in a substantial amount of revenue. Now it is evident that the different provinces “turn the other cheek” on the issue, but is that the intention of the central government in Beijing? or, is their intention really to control the counterfeiting problem, but lack the resources to do so? problem

  6. Chris Carr says:

    Good questions.

    Beijing’s central government challenges are huge and many. E.g., stability, economic growth, energy independence, pollution, foreign relations, access to health care for the 700 million plus peasants, pensions for said group, T*b*t-Tai*an-X*n**ia*g in*epe**ence, a nut case North Korea as a neighbor, etc.

    Put yourself in the shoes of a high up CCP Party member in Beijing — protecting IP rights, particularly those of multinationals like Microsoft, Google, music and movie industry, GM, pharmaceutical firms and the like doing business in China, are not terribly high up on their punch list.

    In the short and medium term it will be a real battle for said firms to get the ear of the relevant players in the Chinese government in light of such other concerns.

Leave a Reply

Your email address will not be published. Required fields are marked *